Inflation rate unchanged in July

The rate of inflation, as measured by the Consumer Prices Index (CPI), has remained steady in July at 1.8 per cent, according to the Office for National Statistics. Analysts had expected it to fall to 1.5 per cent but it stayed at June levels, increasing optimism that the economy is on its way to an improvement.

The Retail Prices Index (RPI) rose in July from June's -1.6 per cent level to -1.4 per cent. The RPI includes mortgage interest payments and so has fallen sharply in recent months, however the increase gave rise to hopes that deflation may now be receding. Core inflation, which excludes energy and food prices, also rose in the month from 1.6 per cent to 1.8 per cent.

Consumers bought more recreational goods like CDs and DVDs in July, helping to keep the CPI steady and furniture sales too improved, while food and drink discounting continued to provide the downward pressure.

At 1.8 per cent the CPI is still below the Bank of England’s target of two per cent and many still expect it to decline towards one per cent later in the year. After the release sterling rose over one per cent against the dollar, as investors took the news to mean interest rates would rise. It had weakened after the Bank of England recently announced a surprise increase in its quantitative easing operations.

WHAT THEY ARE SAYING:Vicky Redwood, an economist at Capital Economics, on BBC.co.uk: "With the amount of spare capacity in the economy still building, core price pressures should soon start to ease. Accordingly, we expect that this halt in the downward trend in inflation will prove to be only temporary. Indeed, these figures do little to alter our view that a prolonged period of low inflation or even deflation remains a serious risk."

George Buckley, UK economist at Deutsche Bank, in the Times: "CPI has proved a bit more sticky than we thought it would be. However, I do think the rate of inflation will fall quite sharply in August and September." ·